India and Indonesia show Asia isn’t all about China

PeterKohli

I do not see "Asia" as a monolith, with or without China. I look at certain segments that make sense to me, although they may not be the most popular breakouts. As a case in point, I think the most promising segment of Asia can be found in the southeast. However, when you Google Southeast Asia, you'll likely come up with the Association of Southeast Asian Nations (ASEAN) countries and corresponding investments.

To say I deplore acronyms is an understatement, so I guarantee you ASEAN means nothing to me. In this column, I will look at my top two Southeast Asian investments: India and Indonesia.

India

This is the time to get in on the world's third-largest economy if you've been holding off.

India has many of the right ingredients for a first-world country. Chief among these is a growing, highly educated middle class with money to burn. Even more importantly, the middle class is politically influential and involved in moving the country toward openness, which can be seen in their support of Narendra Modi for prime minister. Modi's victory when the results are released in May raises hopes for India's economic future.

Foreign investment in the Indian stock markets is about $125 billion, with much of that directed to multinational companies like Tata and Mahindra. Fund investors have many choices, including Matthews India Investor
MINDX, -0.06%
and ALPS Kotak India Growth
INDIX, -0.07%

A key selling feature of India is the fact that, of the other Asian countries, its economy and markets demonstrate the least correlation with China.

India is the one country in Asia that can go head-to-head with China. Although China is growing fast, it depends heavily on foreign investment. By comparison, India is more self-sufficient. For instance, China derives 35% of its GDP through exports with another 30% deriving from governmental loans/stimulus plans. By comparison, India's domestic consumption accounts for 57% of GDP and government stimulus averages only 3% of GDP.

Indonesia

Indonesia, the fourth-most-populated country — and third-largest democracy — in the world, has a robust economy that is growing at a rate of about 6% per year. The country's middle class has grown, too; in the past 10 years it's increased from 37% to 56.7% of the total population in 2013. Indonesia has grown in purchasing power also, creating a significant market for both local and multinational corporations.

Regarding the presidential elections in July, initial opinion polls suggested Indonesia might elect a populist leader, namely Joko Widodo (also known as Jokowi), the Governor of Jakarta. His election would have been a positive sign as he is supported by the middle class who want him to take on the entrenched political system and put a dent into the corruption.

However, there was no Jokowi effect. The recent election results were a disappointment to both the Indonesian people and the investing public. The predictions were that the PDI-P party, of which Jokowi is a member, would capture upwards of 35% in the legislative elections. Instead, it managed to eke out less than 20%. Very disappointing. It seems the political oligarchs have a vice-like grip on the electorate.

I guess political change in Indonesia will take more than one man. An article in the Jakarta Post of April 11, ends with these words, "It is sad to have violators of human rights and blatant power manipulators performing equally as strong as a fresh popular leader!" I agree.

Also, Indonesia's trade imbalance with China is a major concern. Indonesian consumers can't seem to get enough of cheap Chinese products and local manufacturing companies are also becoming more dependent on imported capital and intermediary goods from China. Consequently, Indonesia's trade deficit in industrial goods with China widened in 2011 to US$13.17 billion, an increase of 23.3% compared with 2010 figures. Data by the Industry Ministry shows that in 2012 Indonesia imported $24.4 billion worth of industrial goods from China and exported $11.24 billion of manufactured goods.

Foreign investment in the Indonesian stock market tops about $2 billion and favors major domestic companies like Astra International, as well as companies with strong western ties such as Unilever Indonesia.

Other pluses in Indonesia's favor include the continually increasing foreign-exchange reserves up to $97 billion in November 2013 from $36.3 billion in 2004. The ratio of debt to gross domestic product (GDP) also decreased to 23% in 2013 from about 56.6% in 2004.

As late as last year, India and Indonesia were two developing markets many avoided. Now, these two countries, which World Bank data show together account for 21% of the world's population and 3.8% of global gross domestic product, are looking like bright spots, especially for the Asian region. Although the elections weren't a complete win for capitalistic democracy, things are still looking up. The rupee, which hit a record low against the dollar last August has stabilized as has the Indonesian rupiah.

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